Credit card purchases may appear seamless on the surface to you, but behind the scenes, a lot of sophisticated technology is doing all the work.
Steps in Credit Card Processing
When you submit a client’s payment, other parties help the transaction go through successfully behind the scenes.
According to Interchange Pros, this includes the issuing bank, the credit card processing company, the acquiring bank, and the payment portal. When you understand how these parties complete a transaction, it can help clarify what activities are happening in the background.
Steps Of Credit Card Processors
The step-by-step process of a credit card transaction can occur in a blink of an eye. However, several mechanisms are occurring between several financial institutions.
Step One – Authorization
When the customer presents their information to the point-of-sale (POS) device or payment portal, the information has to be authorized.
The acquiring bank, which belongs to you, will have to verify this information by means of a phone line or internet connection. The credit card processor sends the credit card information to the acquiring bank, which then clears the payment and authorizes it.
This is only if the name, card number, expiration date, address, and card security code (CVV) all match up. The payment amount is declined if it is incorrect or there are insufficient funds in the account issuing bank.
Step Two – Authentication
This is where the issuing bank, belonging to the customer, will verify the information the customer provided on their card. They use an address verification service (AVS) to perform this.
The CVV code is also used in conjunction with this to validify the customer’s identity. The issuing bank will verify the card number, the funds available, the billing address on file, and the CVV number.
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The issuing bank will approve or decline the transaction as it sends data to the other companies.
When you receive the authorization, the issuing bank places a hold on the customer’s funds. This amount won’t be available and will be placed in the processing queue.
Step Three – Credit Card Processing
At the close of business each day, merchants typically send authorized purchases in a group to the credit card processor company.
This amount is sent to the credit card network by the credit card processor, which is later forwarded to the acquiring bank. The credit card network provides funds to the acquiring bank and the credit card processing company but deducts fee percentages for its services.
The credit card processing company will also take out its own fees for processing the payment. If you have a discounted merchant rate, the acquiring bank will credit your account for cardholder purchases to cover losses in processing fees.
Step Four – Chargebacks
If a customer disputes a charge within 60 days of the purchase date, it will charge you between $10 to $50, depending upon the bank’s policies.
This amount is the retrieval request penalty. If the merchant doesn’t respond within a specific period of time, you will have to pay additional fees. With this, you have to pay both the customer payment and the retrieval request amount.
You can appeal, but typically, the banks will favor the customer, and it takes a long time.
Find Out More Information About Credit Card Processes
There is additional advice available from great professionals who can guide you on the payment processing steps.